The value of switching costs
We study a dynamic model with an incumbent monopolist and entry in every subsequent period. We rst show that if all consumers have the same switching cost, then the intertemporal pro ts of the incumbent are the same as if there was only one period. We then study the consequences of heterogeneity of switching costs. We prove that even low switching cost customers have value for the incumbent: when there are more of them its pro ts increase as their presence hinders entrants who nd it more costly to attract high switching cost customers.
|Date of creation:||03 Feb 2010|
|Date of revision:||30 Oct 2012|
|Publication status:||Published in Journal of Economic Theory, vol. 148, n°3, mai 2013, p. 935-952.|
|Contact details of provider:|| Postal: Manufacture des Tabacs, Aile Jean-Jacques Laffont, 21 Allée de Brienne, 31000 TOULOUSE|
Phone: +33 (0)5 61 12 85 89
Fax: + 33 (0)5 61 12 86 37
Web page: http://www.idei.fr/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kim, Moshe & Kliger, Doron & Vale, Bent, 2003. "Estimating switching costs: the case of banking," Journal of Financial Intermediation, Elsevier, vol. 12(1), pages 25-56, January.
- Jiawei Chen, 2011. "How do Switching Costs Affect Market Concentration and Prices in Network Industries?," 2011 Meeting Papers 1428, Society for Economic Dynamics.
- Joseph Farrell and Carl Shapiro., 1988.
"Dynamic Competition with Switching Costs,"
Economics Working Papers
8865, University of California at Berkeley.
- Viard, V. Brian, 2005.
"Do Switching Costs Make Markets More or Less Competitive? The Case of 800-Number Portability,"
1773r3, Stanford University, Graduate School of Business.
- V. Brian Viard, 2007. "Do switching costs make markets more or less competitive? The case of 800-number portability," RAND Journal of Economics, RAND Corporation, vol. 38(1), pages 146-163, 03.
- Biglaiser, Gary & Crémer, Jacques & Dobos, Gergely, 2010.
"The value of switching costs,"
TSE Working Papers
10-142, Toulouse School of Economics (TSE), revised 30 Oct 2012.
- Farrell, Joseph & Klemperer, Paul, 2006.
"Coordination and Lock-In: Competition with Switching Costs and Network Effects,"
Competition Policy Center, Working Paper Series
qt9n26k7v1, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
- Farrell, Joseph & Klemperer, Paul, 2007. "Coordination and Lock-In: Competition with Switching Costs and Network Effects," Handbook of Industrial Organization, Elsevier.
- Joseph Farrell & Paul Klemperer, 2006. "Co-ordination and Lock-in: Competition with Switching Costs and Network Effects," Economics Papers 2006-W07, Economics Group, Nuffield College, University of Oxford.
- Farrell, Joseph & Klemperer, Paul, 2006. "Coordination and Lock-In: Competition with Switching Costs and Network Effects," CEPR Discussion Papers 5798, C.E.P.R. Discussion Papers.
- Gary Biglaiser & Jacques Crémer, 2011. "Equilibria in an infinite horizon game with an incumbent, entry and switching costs," International Journal of Economic Theory, The International Society for Economic Theory, vol. 7(1), pages 65-75, 03.
- BOUCKAERT, Jan & DEGRYSE, Hans & PROVOOST, Thomas, 2010.
"Enchancing market power by reducing switching costs,"
2010008, University of Antwerp, Faculty of Applied Economics.
- Bouckaert, Jan & Degryse, Hans & Provoost, Thomas, 2010. "Enhancing market power by reducing switching costs," Economics Letters, Elsevier, vol. 109(2), pages 131-133, November.
- Bouckaert, J.M.C. & Degryse, H.A. & Provoost, T., 2008. "Enhancing Market Power by Reducing Switching Costs," Discussion Paper 2008-91, Tilburg University, Center for Economic Research.
- Jan Bouckaert & Hans Degryse & Thomas Provoost, 2008. "Enhancing Market Power by Reducing Switching Costs," CESifo Working Paper Series 2449, CESifo Group Munich.
- Yuxin Chen & Jinhong Xie, 2007. "Cross-Market Network Effect with Asymmetric Customer Loyalty: Implications for Competitive Advantage," Marketing Science, INFORMS, vol. 26(1), pages 52-66, 01-02.
- Paul Klemperer, 1987. "Markets with Consumer Switching Costs," The Quarterly Journal of Economics, Oxford University Press, vol. 102(2), pages 375-394.
- Yongmin Chen, 1997. "Paying Customers to Switch," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(4), pages 877-897, December.
- Anderson, Eric T. & Kumar, Nanda & Rajiv, Surendra, 2004. "A comment on: "Revisiting dynamic duopoly with consumer switching costs"," Journal of Economic Theory, Elsevier, vol. 116(1), pages 177-186, May.
- Klemperer, Paul D, 1987. "Entry Deterrence in Markets with Consumer Switching Costs," Economic Journal, Royal Economic Society, vol. 97(388a), pages 99-117, Supplemen.
- Taylor, Curtis R., 2000.
"Supplier Surfing: Competition and Consumer Behavior in Subscription Markets,"
00-12, Duke University, Department of Economics.
- Taylor, Curtis R, 2003. " Supplier Surfing: Competition and Consumer Behavior in Subscription Markets," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 223-246, Summer.
When requesting a correction, please mention this item's handle: RePEc:ide:wpaper:22317. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.